CREDIT SUISSE: Forget what everyone else says — all signs point to Brexit Britain being in a recession

The market consensus is that Britain's economy will grow in 2017
but everyone is being "too optimistic," say Credit Suisse
analysts.

In fact, according to Andrew Garthwaite and his team at Credit
Suisse, all signs are pointing towards Britain being in a mild
recession and we should all be preparing for the worst (emphasis
ours):

"We think consensus is too optimistic on UK growth for 2017. Our
European Economics team expect the UK economy to contract by 1%
in 2017 against a consensus of 0.5% GDP growth (and this is just
for the subset of economists who have updated their forecasts
since Brexit).

"We fear that, ahead of the referendum, two of the best lead
indicators for UK growth – service PMI new orders and vacancy
growth – were already consistent with a mild
recession."

And here is the chart showing how a range of economists predict
the UK avoiding a recession, when in fact Credit Suisse sees a
contraction in the UK economy next year:

Credit
Suisse

And here are the two other charts which summarise why Credit
Suisse thinks the data points towards a recession:

Credit
Suisse

Credit Suisse warns as well that there are five major risks to
the UK economy watch out for:

1. Companies have no Brexit contingency plans —
Credit Suisse warns that 49% of FTSE 350 boards in the FT–ICSA
Boardroom Bellwether survey, May 2016 did not put a plan in place
to cope with a Brexit from happening. In other words, a bulk of
businesses thought a Brexit vote was probably not going to
happen, so they did not plan on what the firm should do in the
event of Britain leaving the European Union.

2. Exports to the EU are going to be "discriminated
against" — Credit Suisse points out that Britain's
service sector exports to the EU, account for 4.5% of GDP, and
"could come under pressure as we believe the EU is likely to
discriminate against these exports especially in the financial
sector if the UK pursues a policy of restricting freedom of
movement." Basically, a vital piece of our economy is probably
going to be punished for the Brexit vot

3. People are going to stop investing in Britain
— Foreign Direct Investment is going to dry up quickly.
Credit Suisse says "FDI could easily slow by a half or more
(taking c0.5% to 1% off GDP growth)."

4. Companies have stockpiled goods — Credit
Suisse points out that inventory levels — the number of
ready-for-sale products— were not low prior to the referendum and
"there had been an inventory build in Q1 on the GDP data, and
inventory levels on survey data were mid-ranged." This means
firms have a lot of goods waiting to be sold and a downturn in
the economy could hamper selling those goods.

5. "The UK consumer was not prepared for a shock"
— Analysts worry that Britons are just not saving enough
money to weather a downturn in the economy. "The saving rate
prior to the Brexit vote was a low 5.9% (not far off the near
all-time low of 4.3% in 2008) with consumer credit growth of
c.11% year-on-year," says Credit Suisse.

So all-in-all, Britain is a bit screwed and we're easily bumbling
our way into a recession.